Markets with strong “soft power” brands attract greater share of FDI

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  • BRICs dominate top spot in Index

London, 29 May 2012 – EY today launched its Rapid Growth Market Soft Power Index, in conjunction with the Moscow-based SKOLKOVO Institute for Emerging Markets Studies which shows that countries with strong “soft power” brands attract significantly more foreign direct investment (FDI)

At its core, soft power is defined as the ability to shape the preferences of others by possessing intangible assets such as an attractive personality, culture, political values and institutions and policies that are seen as legitimate or having moral authority. The Rapid Growth Soft Power Index consists of three criteria: integrity, global integration and image.

Although year-on year changes do occur in the rankings, the absolute changes are not large, demonstrating that a strong power brand typically takes many years to acquire or lose.

Alexis Karklins-Marchay, Co-leader of the EY Emerging Markets Center says, “Several recent trends have made the deployment and use of soft power critical and it is no surprise that the BRIC countries dominate this index. Firstly, the recent rapid growth of the emerging market economies; and secondly the issue of soft power has become vital as countries compete to attracting foreign direct investment.

“Soft power has gained widespread currency and is now regarded as an important and comprehensive indicator of national strength. In addition, soft power is essential in raising and reinforcing a nation’s brand.”

Rapid Growth Markets vs the G7s
Using the identical variables and weights as those used for Rapid Growth Markets, soft power was calculated for each of the G7 nations.  The US dominated the index with a considerably margin of almost 40 index points from France which was ranked second, followed by Germany and the United Kingdom. The G7 nations rank significantly higher than emerging markets although the gap is decreasing when compared to Japan and Italy.

Karklins-Marchay concludes, “Today’s economic and political environments are fluid. If the decline of the West is faster than anyone expects, rather than slow and relative, then the shift in soft power toward the developing world may be faster than anyone has anticipated.”

Note to Editor:
According to the Index, China leads the emerging market economies, followed closely by India, Russia and Brazil and Turkey. The economies of emerging Eastern Europe comprise the largest number (10 countries) in the top 20; while Central and South America combined have only five. Africa has just one country represented, South Africa, which is ranked in seventh position.

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About the Rapid Growth Markets Soft Power Index
The Rapid Growth Markets Soft Power Index is measured according to thirteen soft power variables, divided into three major categories: global image, global integrity and global integration.   The variables all have an impact on a sovereign state’s soft power on the global stage. Due to limited data availability of a few of the variables, the index covers six years from 2005 to 2010. 

The research was conducted by the SKOLKOVO Institute for Emerging Market Studies which is knowledge center at the Moscow School of Management SKOLKOVO that specializes in the research of emerging market economies and businesses.

About the Moscow School of Management SKOLKOVO 
Moscow School of Management SKOLKOVO is a joint project of Russian and international business representatives, who joined their efforts to create a business new-generation school from scratch. Focusing on practical knowledge, the Moscow School of Management dedicates itself to training leaders, who intend to implement their professional knowledge in the conditions of rapidly developing markets. SKOLKOVO business school is defined by: leadership and business undertakings, rapidly developing markets focus, innovative approach towards educational methods.